The NBN business plan

Rate of return: they have forecasted a 7 percent internal rate of return. Let’s be clear, for an infrastructure investment with risks that this one surely has on the demand side, that is a below-commercial rate of return. It is, however, a net positive social return of return but that depends on how you run the NBN.

Wholesale prices: the wholesale prices for access seem within expectations but are ruling out basic broadband at cheaper rates so we will truly have universal access.

Download caps will remain with the vast majority of users unable to fully utilise the speed advantages of the NBN.

They won’t be providing HD video conferencing: why is this so? If you look at Exhibit 9.26, they claim this requires 1Gbps speeds. But on Exhibit 8.13 on the most expensive access scheme, the upload speed is at most 400Mbps. So that is out as is Healthcare Information Management. And if you look at Exhibit 9.26, the only remaining applications anticipated to require more than 100Mbps are downloading massive pictures. Really, nothing else.

On competition, there are some red-flag assumptions indicating a future war on consumers. For instance,

Cherry Picking – The Government will provide effective regulatory protection to prevent market participants entering the FTTP market and cherry picking the most commercially attractive areas ahead of the NBN build. The viability of the project is dependent upon this protection; and

Trade Practices Act (TPA) Protection – The Government will provide any required legislative (or regulatory as appropriate) protection to NBN Co in order for the Company to implement the semi-distributed PoI model (including the cross-subsidy required by the Government to achieve

And, finally, there is clear evidence that the deal with Telstra is highly anticompetitive:

In a fully competitive scenario (i.e. assuming no deal with Telstra, see Sub-Section 3.1.1, Telstra Definitive Agreements) it is likely that one of the existing HFC networks will be upgraded at least to encompass node splitting, thus being able to offer speeds of over 200Mbps to over 2 million premises but with substantially lower performance than GPON (lower upstream speeds and higher contention ratios). It is considered less likely, but still possible, that both networks would be upgraded, given the very substantial overlap between the two.

We should be outraged at this. More to the point the ACCC should be outraged with this. Where is Graeme Samuel on this? We have a clear statement that we will be getting a 3 to 2 or a 3 to 1 transformation as a result of the deal between NBN Co and Telstra. This is as substantial a lessening of competition from an agreement that we can imagine. And yet our independent competition regulator — whose independence is there because Government business entities are subject to the Trade Practices Act — appears to have abdicated its role. At the very least, this deal needs to go through authorisation so that we can assess whether there are public benefits here. And where is the Opposition calling for markets to work and the law to be applied?

In summary, the NBN is structured as a subsidy for the rich in Australia. It has the potential to be so much more but the obsession with commercial returns has killed it. Where is the Labor party? Where are the Greens? How do these MPs live with themselves knowing that they are abandoning core values.

Joshua, there is no surprise, but for a reason different from what you outline.
The NBN business plan is a disaster because of Labor and the Greens and not despite them. When Labor got in power I had no idea that they would beat all records of incompetence. All they do is burn money. The greens especially, with their purported purity, are the most anticompetitive of them all.
The whole issue boils down to only one thing. Take Telstra’s control of the last mile away. Yes, it would reduce Telstra’s value, but would increase Australia’s.

You said it yourself – “At the very least, this deal needs to go through authorisation so that we can assess whether there are public benefits here.”
You do not think it would at just a little bit inappropriate for Graeme Samuels to make public statements that pre-empt an authorisation decision? You do not see him saying “yes, we are assessing whether this merger will substantially lessen competition – but just between us, it clearly does.”
The ACCC does not have the luxury of a blog in which it can express its opinions – it actually has to, you know, do proper, in-depth analysis.

The heart of the NBN is the optical fibre. The fibre in one direction has the same capability as the fibre in the reverse direction. And at the start of the implementation, that fibre is capable of gigabit performance for every wavelength that’s sent down the glass. Without it, all the who-haa about plans, up and down speeds etc is just hot air. Everything else revolves around the the terminations – the bits attached to the ends of the fibre to realise the capabilities of the fibre. Those terminations do cost $, but if there’s a need for example HD video conferencing, once the fibre is there simply changing the terminations is all that’s needed to make it go.
Putting a 7% ROI on current or projected usage for something that will be in use for decades seems to me to be foolish, but maybe the noisy uninformed need that despite the history that use of the internet – or more specifically the data network that it rides on – has exceeded by orders of magnitudes any expectations ever held for it.
Maybe the economists should subscribe to research outfits like Gartner and take some cognisance of 1) the economic advantage that countries like south korea are deriving from broadband networks, and 2) what the technical foundations of the future is likely to be like.